IMPACT OF FOREIGN DIRECT INVESTMENT (FDIS) ON NIGERIA’S REAL SECTOR

INTRODUCTION 1.1 Background to the study The role of Foreign Direct Investment on economic growth has been vigorously debated in the literature. Some studies are of the view that Foreign Direct Investment (FDI) contributes positively to the growth of the economy (Adegbite and Ayadi, 2011; Koojaroenprasit, 2012; Onu, 2012; Adeleke, Olowe and Fasesin, 2014; John, 2016; and Ali and Hussain, 2017), while some are of the view that FDI only contributes small and it is not significant (Akinlo, 2004; Louzi and Abadi, 2011). However, the attributes of FDI in any economy of the world cannot be over- emphasized. FDI refers to an investment made by an investor either corporate bodies or individuals in a country other than the domestic country of origin of the investor in creating business or buying an asset in the country. John, (2016) posits that foreign direct investment is seen as a process of moving technology and capital from a nation either developed or developing countries to another nation. Farrell, (2018) posits that foreign direct investment refers to the package of technology, capital, management, and entrepreneurship that firm uses to operate and provide goods and services in a foreign market. In Africa, Nigeria is the third host economy for FDI, behind Egypt and Ethiopia. Some of the investing countries in Nigeria are the USA, United Kingdom, China, the Netherlands and France (UNCTAD, 2018). Nigeria FDI flows in 2017 dropped by 21% to reach 3.5 billion USD which could be as a result of political instability, lack of transparency widespread corruption and poor quality of infrastructure (UNCTAD, 2018). However, this study tends to re-examine the impact of foreign direct investment on economic growth in Nigeria. The World Investment Report 2008 revealed that the World Foreign Direct Investment has been used all along, which averaged US 492.6 billion between 1990 and 2000 rose to US$1.8 trillion in 2007. Despite that, only a few countries have been successful in attracting significant FDI inflows. Indeed, Africa as a whole – sub-Saharan Africa (SSA) in particular – has not particularly benefited so much from the FDI boom. FDI inflows into Africa increased from an annual average of about US$6.9 billion between 1990 and 2000 to US$36.6 billion over the period of 2004 and 2007. In percentage terms, the share of Africa in the global FDI was about 6% in 1990, later dropped precipitously to 3 in 2007 (UNCTAD, 2008). FDI inflows to sub-Saharan African was US$ 29 billion in 2010 and stood at $37 billion in 2011, close to the historic peak of 2008 (UNCTAD, 2012).Nigeria as a country, given her natural resource base and large market size, qualifies to be a major recipient of FDI in Africa and indeed is one of the top three leading African countries that consistently received FDI in the past decade. However, the level of FDI attracted is inadequate compared with the resource base and potential need. Nigeria’s share of FDI inflow to Africa averaged around 24.68% between 1976 and 2010. For instance, available statistics showed that Nigeria’s share of FDI inflows to Africa fell from 35.2% in 1990 to 13.6% in 2000 then rose to 16.3% in 2005 and stood at 14.0% in 2010.The pattern of movement in FDI inflow to Nigeria is suggestive of being affected basically by other qualitative and not quantitative factors of which uncertainty is at its centre point. The attractiveness and actual disbursement of FDI into a given country depends on many factors, including political and economic conditions both in the host country and in the rest of the world. Uncertainty may emanate from volatility in macroeconomic variables like exchange rates, resource prices, interest rates, and changes in policies and rules of business transactions. The relevance of FDI cannot be overemphasized. Its significant influence on the provision of new technologies, products, management skills and competitive business environment, overtime has been a strong impetus for economic growth. Many countries of the world, especially emerging economies favor policies that encourages the inflow of FDI because of it positive spillover associated with the provision of funds and expertise that could help smaller companies to expand and increase international sales and transfer of technology thus, forming new varieties of capital input (i.e. flow of services available for production from the stock of capital goods e.g. equipment, structures, inventories etc.) that cannot be achieved through financial investments or trade in goods and services alone. Nigeria is one of the economies with great demand for goods and services and has attracted many FDI over the years since the discovery of crude oil. According to the World Bank, from 1970 to 1979, Nigeria recorded an average ratio of FDI net inflow of about 1.579 to GDP while from 1980 to 1989, the average ratio of FDI net inflow to GDP recorded stood at 1.947. Thus, in 1994 and 1993, the country made a remarkable record of 8.28 and 6.3 respectively. Since 1993 and 1994, the record was not an issue to contend with. To the greatest of dismay, from 1995 to 2010, FDI, net inflow as % of GDP in Nigeria has not gone beyond 4.0 except in 1996, 1997, 2005 and 2009 the country made a record of 4.51, 4.25, 4.44 and 5.08 respectively. World Bank research contained in global development finance (2008) shows that Thailand attracted $9.6 billion in 2007 while Nigeria attracted about $6.03 billion. Also, CBN (2010) annual report also indicated that total FDI inflow into the Nigerian in 2010 was about $5.99 billion. The breakdown of the amount according to the report shows that FDI portion was just 12.2 percent or $668 million. This represents a 0.51 percent drop from $2.31 billion in 2019. In light of the above, many Nigerians are lost in guesses of the likely causes of the insignificant inflow of FDI into the country. This has been a source of worry to both policy makers and government authorities. Further, Asiedu, (2019) asserted that the level of FDI attracted by Nigeria is indifferent compared with the resource based and potential need, taken into cognizance of the fact that Nigeria is the 8th ranked most populous nation and 32nd biggest economy in the world (CIA World fact book) with the endowment to do better than its counterpart South Africa as the Africa biggest economy following the statement of investment giant Morgan Stanley. 1.2 Statement of Problem The efforts of most countries in Africa to attract FDI have been futile. This is in spite of the perceived and obvious need for FDI in the continent. The development is disturbing, sending very little hope of economic development and growth for these countries. Nigeria as a nation has not been able to fully tap from her resources. Recent report has shown that Nigeria due to her over-dependency on oil is fast losing its leading role in terms of attracting FDI in Africa to Egypt and South Africa, which were successful in attracting FDI in diverse sectors of their economies (UNCTAD, 2009). Nigeria’s poor FDI record can be further adduced due to the following reasons: Uncertainty, Political Instability, Macroeconomic Instability, Lack of policy transparency, inhospitable regulatory environment, GDP growth and market size and Poor infrastructure. Furthermore poor infrastructure reduces the productivity of investments thereby discouraging inflows. Asiedu (2002) and Morrisset (2000) provide evidence that good infrastructure has a positive impact on FDI flows to Africa. However, due to the above in adequacies, the researcher wants to find out the impact of FDI on the real sector in Nigeria. 1.3 Objectives of the Study The broad objective of the study is to examine the impact of FDI on Nigeria Real Sector. The specific objectives are: 1. To examine the Impact of Trade Openness on Nigeria Real Sector, proxy by Real Gross Domestic Product. 2. To evaluate the Impact of Gross Domestic Investment on Nigeria Real Sector, proxy by Real Gross Domestic Product. 3. To Investigate the Impact of Exchange Rate on Nigeria Real Sector, proxy by Real Gross Domestic Product. 4. To establish the Impact of Interest Rate on Nigeria Real Sector, proxy by Real Gross Domestic Product. 1.4Research Question To achieve the aim of this study, answers were sought for the following questions; 1. Does Trade Openness contribute to Nigeria Real Sector? 2. What is the effect of Gross Domestic Investment on Nigeria Real Sector? 3. Has there been a positive impact of Exchange Rate on Nigeria Real Sector? 4. Is there any impact Interest Rate has on Nigeria Real Sector? 1.5 Research Hypotheses The hypothesis for this research will be stated in their null forms: 1. H01: There is no significant relationship between Trade Openness and Nigeria’s Real Sector, proxy by Real Gross Domestic Product. 2. H02: Gross Domestic Investment has no significant impact on Nigeria’s Real Sector, proxy by Real Gross Domestic Product. 3. H03: Exchange Rate has no Long run significant relationship on Nigeria’s Real Sector which would be proxy by Real Gross Domestic Product. 4. H04: There is no significant relationship between Interest Rate and Nigeria’s Real Sector, proxy by Real Gross Domestic Product. 1.6 Significance of the Study The study is significant to stakeholders and participants in the economy as it seeks to measure the impact of Foreign Direct Investment on Nigeria’s Real Sector. The study will add to the existing body of knowledge in this area of research, it will shed light on the instrument of Foreign direct investment and how it is used to attain its aim and objectives. The Findings from this study will be of immense benefits in a number of ways and to different groups of persons which include, Federal Government through the Ministries of Trade, Investment, Foreign Affairs, The Central Bank of Nigeria (CBN), Students and other researchers in related field. 1.7 Scope of the Study The study will centre on the contribution that has been made to Nigeria Real Sector by the way of Real Gross Domestic Product (RGDP), engulfing the period from 1990-2020. Annual time series data will be engaged using RGDP as a proxy for Nigeria’s Real Sector and other variables such as Trade Openness (TO), Gross Domestic Investment (GDI), Exchange Rate (EXR) and Interest Rate (INTR) in Nigeria will be tested. 1.8 Organization of the Study This study is organized into five chapters. Chapter one which is the introduction started by providing a background of the subject matter, the problems and objectives follow. These are followed by hypotheses, rationale and scope of the study as well as the organization of the chapters. Chapter two presents related literature concerning conceptual literature, theoretical, and empirical literature. Chapter three contained the research methodology, which consist of the sources of data, model specification and methods of data analysis, while the results and discussion are presented in chapter four. Chapter five contains the summary, conclusions and recommendations of the study. They are followed by references and Appendix. 1.9 Definition of the Terms 1. Abrupt: Brief to the point of rudeness; curt. 2. Bureaucratic: Relating to a system of government in which most of the important decisions are taken by state officials rather than by elected representatives. 3. Budget Deficit: This occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt. 4. Capital Investment: Is defined as a sum of cash acquired by a company to pursue its objectives, such as continuing or growing operations. A capital investment can be made via several sources including using cash on hand, selling other assets, or raising capital through the issuance of debt or equity. 5. Conflicts: A serious disagreement or argument, typically a protracted one. 6. Corruption: The process by which a word or expression is changed from its original state to one regarded as erroneous or debased. 7. Crude Oil: This means a mixture of hydrocarbons that exists in liquid phase in natural underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities. 8. Currency Crash: These are a sudden and drastic devaluation in a nation's currency matched by volatile markets and a lack of faith in the nation's economy. A currency crisis is sometimes predictable and is often sudden. It may be precipitated by governments, investors, central banks, or any combination of actors. 9. Deterrents: A thing that discourages or is intended to discourage someone from doing something. 10. Disbursement: A payment, especially one made by a solicitor to a third party and then claimed back from the client. 11. Economic Real Sector: The real sector is one of the major components of the Nigeria economy. The sector is made up of the manufacturing and service industries. These include housing, agriculture, manufacturing industry, mining infrastructure and services. 12. Entrepreneurship: The activity of setting up a business or businesses, taking on financial risks in the hope of profit. 13. Exchange Rate: Is the value of a country's currency vs. that of another country or economic zone. Most exchange rates are free-floating and will rise or fall based on supply and demand in the market. 14. Foreign Direct Investment: Is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control. 15. Gross Domestic Investment: Is the measure of physical investment used in computing GDP in the measurement of nations' economic activity. This is an important component of GDP because it provides an indicator of the future productive capacity of the economy. 16. Real Gross Domestic Product: Is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country's economic health. 17. Infrastructure: The basic physical and organizational structures and facilities (e.g. buildings, roads, and power supplies) needed for the operation of a society or enterprise. 18. Inflows: The movement of a large number of people or things or a large amount of money into a place. 19. International Sales Contract: Is an agreement under which goods shall be delivered from the territory of one country to the territory of another country. 20. Inflation: A general increase in prices and fall in the purchasing value of money. 21. Interest Rate: The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. 22. Macroeconomics: The branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity. 23. Management: The process of dealing with or controlling things or people. 24. Marketing Strategy: A plan of action designed to promote and sell a product or service. 25. Political Instability: This can be defined in at least three ways. A first approach is to define it as the propensity for regime or government change 26. Populous: Full of people; crowded or thickly populated. ... Containing many people or inhabitants; having a large population 27. Power Supply: A device providing power to electronic equipment and sometimes designated A, B, or C according to its function of heating vacuum tube cathodes, causing a flow of electron current in plate circuits, or applying a direct voltage in grid circuits. 28. Telecommunication: Communication over a distance by cable, telegraph, telephone, or broadcasting. 29. Weak Governance: These “government failures” lead to broader failures in political, economic and civic institutions that the OECD Investment Committee refers to as “weak governance” REFERENCE Adegbite, E.O. & Ayadi, F.S. (2011). The Role of Foreign Direct Investment in Economic Development: A Study of Nigeria. World Journal of Entrepreneurship, Management and Sustainable Development, 6, 133-147. https://doi.org/10.1108/20425961201000011 Adeleke, K.M., Olowe, S.O. and Fasesin, O.O. (2014) Impact of Foreign Direct Investment on Nigeria Economic Growth. International Journal of Academic Research in Business and Social Sciences, 4, 234-242. https://doi.org/10.6007/IJARBSS/v4-i8/1092 Ajayi S.I. (2006), “The determinant of foreign direct investment in Africa: A survey Evidence”. African Economic Research Consortium. Ajayi, S.I. (2004): “Determinants of Foreign Direct Investment in Africa: A Survey of the Evidences”; A Framework Paper Presented at the IMF/AERC Special Workshop on FDI in Africa, Nariobi, Kenya. December 2-3. Akinlo, A.E. (2004) Foreign Direct Investment and Growth in Nigeria: An Empirical Investigation. Journal of Policy Modeling, 26, 627-639. https://doi.org/10.1016/j.jpolmod.2004.04.011 Ali, N. & Hussain, H. (2017) Impact of Foreign Direct Investment on the Economic Growth of Pakistan. American Journal of Economics, 7, 163-170. Asiedu, E. (2019). “On the Determinant of FDI to Developing Countries: Is Africa Different?” World Development vol. 30, No.1. Bleaney, M. (1993), „Political Uncertainty and Private Investment in South Africa‟, CREDIT Research Paper no.93/15, University of Nottingham. Collier, Paul (1994). The Marginalization of Africa‟, Centre for the Study of African Economies, Mimeo. Dornbusch, R & A Reynoso (1989), “Financial Factors in Economics Development”, American Economic Review Papers and Proceedings, vol.79, pp. 204-209. Farrell, R. (2008) Japanese Investment in the World Economy: A Study of Strategic Themes in the Internationalization of Japanese Industry. Edward Elgar, Britain. https://doi.org/10.4337/9781848442825. Faruqee, R. (1992), „Private Investment in Sub-Saharan Africa: An Exploratory analysis‟, Internal Discussion Paper (Africa regional series), World Bank. Louzi, B.M. & Abadi, A. (2011). The Impact of Foreign Direct Investment on Economic Growth in Jordan. IJRRAS, 8, 253-258. Morrisset, Jacques (2002). „Foreign Direct Investment in Africa: Policies Matter‟ Published by Transnational Corporations. Mwega, Francis M. and Rose W. Ngugi (2005), Foreign Direct Investment in Kenya, A Final Report Submitted to the African Research Economic Research Consortium, Nairobi, Kenya. Onu, J.C. (2012) Impact of Foreign Direct Investment on Economic Growth in Nigeria. Interdisciplinary Journal of Contemporary Research in Business, 4, 64-78. Oshikoya, T (1994). “Macroeconomic Determinants of Domestic Private Investment in Africa: an Empirical Analysis”, Economic Development and Cultural Change, vol 42(3), pp.573-596. Root, F. and A. Ahmed (1979). “Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries”, Economic Development and Cultural Change, vol 27, pp.751-767. Sachs, J. and S. Sievers (1998), “FDI in Africa”, Africa Competitive Report. 1998, Geneva: World Economic Forum. Schneider, F. and B. Fry (1985), „Economic and Political Determinants of Foreign Direct Investment‟, World Development, vol 13(2), pp. 161-175. Serven, L. and A. Solimano (1993), „Debt Crisis, Adjustment Policies and Capital Formation in Developing Countries: Where Do We Stand? World Development, vol 21(1), pp.127-140. Serven, Luis. (1998). Macroeconomic Uncertainty and Private Investment in LDCs: An Empirical Investigation, the World Bank. UNCTAD (2008). World Investment Report‟, United Nations, New York and Geneva. UNCTAD (2009). Assessing the Impact of the Current Financial and Economic Crisis on Global FDI Flows‟, United Nations, New York and Geneva. World Bank (2013), „World Development Indicators 2013‟ Washington DC. UNCTAD (2018) United Nations Conference on Trade and Development. WorldInvestmentReport.https://unctad.org/en/PublicationsLibrary/wir2018_en.pdf CHAPTER TWO 2.0 Review of Related Literature Preamble Most countries strive to attract foreign direct investment (FDI) because of its acknowledged advantages as a tool of economic growth. Africa in general and Nigeria in particular joined the rest of the world in seeking FDI as evidenced by the formation of the New Partnership for Africa’s Development (NEPAD), which has the attraction of foreign investment to Africa as a major component (Ayanwale, 2007). The role of foreign direct investment in the development of Nigerian economy cannot be over emphasized. Foreign direct investment provides capital for investment; it enhances job creation and managerial skills, and possibly technology transfer (Obida & Abu, 2010). Foreign Direct Investment is considered an encouraging impetus for economic growth by enhancing competitiveness through offering employment, transferring sophisticated technologies, boosting productivity and promoting infrastructure. FDI is seen as a way of filling the gap between available domestic supplies of saving, government revenue, human capital skills and the desired level of resources needed to achieve growth and development targets (Okonkwo, Egbunike & Udeh, 2015). FDI makes significant contributions to the host country's development process especially through easing of the constraints of low levels of domestic savings and investment as well as foreign exchange shortages. It increases the gross domestic product and generates a stream of real incomes in the host country. Nigeria is one of the economies with great demand for goods and services and has attracted some FDI over the years. This is based on the need to maximize the potential benefits derived from them; and to minimize the negative effects their operations could impose on the country. 2.1 Conceptual Review 2.1.1Concept of Foreign Direct Investment Foreign Direct Investment according to Mariloman (2003) described as investment made to acquire a lasting management interest (usually at least 10% of voting stock) and acquiring at least 10% of equity share in an enterprise operating in a country other than the home country of the investor. Kumar (2007), described Direct Foreign Investment (DFI) in several ways. First and most likely it may involve parent enterprise injecting equity capital by purchasing shares in foreign affiliates. Second, it may take the form of reinvesting the affiliate’s earning. Third, it may entail short-or foreign investment as a share of Gross Domestic Product has grown rapidly, becoming the largest source of capital moving from developed nations to developing nations. Foreign direct investment says Omankhanlen (2011) includes; external resources including technology, managerial and marketing expertise and capital. All these generate a considerable impact on host nation’s productive capabilities and the success of government policies of stimulating the productive base of the economy depend largely on her ability to control adequate amount of FDI comprising of managerial, capital and technological resources to boast the existing production capacity. Similarly, Mallampally and Sauvant (1999) describe it as investment by multinational corporations in foreign countries in order to control assets and manage production activities in those countries. Foreign direct investment is an investment made by an individual or a company (investor) in a country which is not the country of origin of the investor, in the form of either establishing business or acquiring business assets in the country. FDI is the extra resource a country needs in order to achieve economic growth. It is a combination of technology, marketing, capital and management. It provides a firm with new markets, marketing channels, easy admittance to new technology, skills, product, financing and production facilities. Foreign direct investment can be defined as a foreign investment that is a part or share of GDP which grows rapidly; it is turning into the largest origin of capital moving from developed countries to developing countries Kasimu Aminu (2020). Foreign direct investment (FDI) is the defined “as an increase in the book value of the net worth of investment in one country held by investors of another country where the investments are under the managerial control of the investor” (Graham, 1995). To buttress the definition above, Todaro and Smith (2003) noted that most FDI are in fact subsidiaries of Multinational Corporations (MNCs) such that the investors are the parent organizations of firms. Thus, foreign direct investment flows represent the expansion of the international activities of Multinational Corporations. 2.1.2 Concept of Economic Growth The concept of economic growth usually refers to the increase in the inflation- adjusted market value of goods and services produced by an economy over a period of time. It is measured as the percentage rate of increase in real GDP usually in per capita terms. Growth usually is calculated in real terms i.e. inflation-adjusted terms. Economic growth also means increased growth in the level of output produced by a country over time and it crucially measures the economic performance of a country. Jhingan (2002) defines economic growth “as the process whereby the real per capita income for a country increases over a long period of time”. He states that economic growth is measured by increase in the amount of goods and services in each successive time period. Thus, growth occurs when an economy’s productive capacity increases which in turn is used to produce more goods and services. Economic Growth according to Jhinghan (2003) is the quantitative sustained increase in the countries per capital output or income accompanied by expansion in its labor force, consumption, capital and volume of trade. Schumpeter (1946) refers it as a gradual and steady change in the long run which is brought about by a gradual increase in the rate of savings and population. Samuelson (2006) sees economic growth as the expansion of a country’s potential GDP or national output. He explains it further as when a nation’s productivity frontier shifts outwards. From the above definitions we can infer that economic growth is the process which leads to sustained increase in the national output over a period of time. Kindleberger (1965) sees economic growth as increase in the level of output without a change in institutional and technological arrangement. Economic growth can be seen as a sustained increase in per capital national outputs or net national product over a long period of time. It is also a quantitative increase in the monetary values of goods and services produced in an economy within a given year, Thabani and Wellington, (2018). In the words of Zhattau (2013) economic growth is the basis of increase prosperity and it comes from accumulation of more capital and innovations which lead to technical progress, the idea similar to Solow (2002) growth model who sees economic growth in terms of growth in total GDP due to increase in population, technical progress and investment. Growth according to Classical Economist signifies increase in the rate of investment. In other words, growth is a function of share of profit in the national income. There exists a positive relationship between higher rate of profit and higher rate of growth in the long run. Feldman and Francis, (2003) as cited in Okeke, Mbonu and Ndubuisi, (2018) opined that, economic development entails combined action and all-encompassing, long-term investment. According to Okeke et al. (2018), economic development talks about the critical conditions needed for the micro economic working of the economy. Furthermore they stated that economic development is centered around government and though it is undoubtedly feasible to have economic advances without development in the immediate or near term, economic development generates the environments that enable long-run economic growth, (Okeke et al, 2018). That the cardinal objective of economic development is employment generation but for progress, what is important is the amount of jobs created in the economy. Thus the focus of economic development is career advancement opportunities, wages and working conditions. Dwivedi (2004) states that, economic growth is a sustained increase in per capita national output or net national product over a long period of time. It implies that the rate on increase in total output must be greater than the rate of population growth. Another quantification of economic growth is that national output should be composed of such goods and services which satisfy the maximum want of the maximum number of people. Economic growth can be determined by four important determinants namely, human resources, national resources, capital formation and technological development. Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. 'Economic growth' or 'economic growth theory' typically refers to growth of potential output, i.e., production at 'full employment,' which is caused by growth in aggregate demand or observed output (Nzotta, 2007). 2.1.3 Concept of Exchange Rate James Chen, (2020) defines the real exchange rate as the relative national price levels between two economic with the corresponding nominal exchange rate being an auxiliary to convert the unit of account such the two price levels are measured in a single currency. Its subject is not the currency or exchange rate, but the relative cost of living, between two economies. Exchange rates can be either fixed or floating. Fixed exchange rates are decided by central Bank of a country where as floating exchange rates are decided by the mechanism of market demand and supply. According to Bennett (2021) defines Exchange rate is the price of one currency in terms of another currency. Exchange rates can be either fixed or floating. Fixed exchange rates are decided by central banks of s country where as floating Exchange rates are decided by the mechanism of market demand and supply. According Jhingan (2001) in common language interest is a payment made by borrower to the lender for the use of money and is expressed as a rate percent per year. To him, in economics, interest is defined differently by different economists. To Carver, „interest is the income which goes to the owner of capital”. To Marshal “interest is the price paid for the use of capital in any market”. To Wicksell “interest is a payment by the borrower of capital by virtue of its productivity, as reward for his (the capitalists) abstinence. 2.1.4 Concept of Interest Rate According to Jhingan (2001) interest rate play the following role in any economy: I. Interest induces people to save from their incomes and provides capital for productive uses. II. It measures the opportunity cost of various productive channels and thus helps allocation of saving among them. III. It regulates the flow of investible funds and thereby influences the growth and direction of business and industrial activity IV. It has been widely recognized as a powerful weapon to be used by the monetary authorities to control inflation, deflation, capital movement etc. 2.1.5 Foreign Direct Investment and Economic Growth: The Nexus A nation that desires economic growth must save and invest a reasonable proportion of its national income. But developing countries are by definition poor and characterized by low savings and investment rates which in turn, have contributed to their remaining poor. An inflow of foreign resources is expected to supplement the domestic resources and assist in enhancing the growth of the economy. Foreign Direct Investment is considered as an invaluable tool for achieving economic growth in developing countries. The United Nations defined foreign direct investment (FDI) as investment in enterprise located in one country but “effectively controlled” by residents of another country (UNCTAD, 2009). Foreign direct investment is perceived to have a positive impact on economic growth of a host country through various direct and indirect channels. It augments domestic investment, which is crucial to the attainment of sustained growth and development (Olokoyo, 2012). Borensztein et al. (1998) see FDI as an important vehicle for the transfer of technology, contributing to growth in larger measure than domestic investment. Bengos and Sanchez Robles (2003) assert that even though FDI is positively correlated with economic growth, host countries require minimum human capital, economic stability and liberalized markets in order to benefit from long-term FDI inflows. Foreign Direct Investment and economic growth nexus has spurred volumes of empirical studies on both developed and developing countries. This nexus has been studied by explaining the determinants of both growth and FDI, the role of Trans-National Companies (TNCs) in host countries, and the direction of causality between the two variables. There is an agreement which states that FDI has serve as an advantage to local firms by increasing growth which leads to productivity and efficiency. Developed nations have agreed that productivity has been the key to domestic firms. The FDI’s importance in export promotion is said to be debatable and it relies on it solely for the purpose of investment. The main agreement is that FDI spill over depends on the capacity of the host country in order to absorb the type of investment nature and also foreign technology. The relationship between economic growth and FDI is tagged conditional depending on the country it is passing through. It has been asserted the extent to which FDI contributes to growth depends on economic and social conditions or in short the quality of the environment of the recipient country (Zhang, 2001). Thus, employment opportunities are created through FDI in the hosting countries and this is done through direct employment in the domestic economy for operations, for forward and backward connections, leads to more employment creation in the economy due to growth. Growth can be generated through FDI and a steady state of growth over a period of time reduces poverty (Ajayi, 2006). 2.1.6 Brief Background of the current state of Foreign Direct Investment in Nigeria According to UNCATD (2019) report, Nigeria is the one of the popular economy for FDI in Africa. The nation is part of the encouraging bodies for growth in Africa and leads investors to the sector of hydrocarbon, energy, building, etc. the nation experiences impact of oil counter stun. UNCATD indicated that FDI streams Nigeria totaled USD 1.9billion in 2018 and demonstrated a decline when estimated to last year’s (USD 3.5 billion in 2017) under the effects of austerity measures. Estimated at USD 99.6billion in 2018, the total shock of FDI represents 25.1% of the country’s GDP. The important countries that invest in Nigeria include China, USA, Netherlands, United Kingdom and France. Nigeria has the intention of the diversifying its economy by staying away from oil and building a competitive manufacturing sector which would encourage interaction into global value chains and productivity. The recent merging of trade, investment and industry under the scope of the federal ministry of industry, trade and investment mirrors Nigeria’s aim to successfully manage between these three key areas to increase its trading and investment mirror Nigeria’s aim to successfully manage between these three key areas to increase its trading and investment condition. A portion of the country’s advantages are a partially privatized economy, a good taxation system, abundant natural resources and low cost of labor. Problems such as political instability, corruption, lack of transparency and poor quality of infrastructure are restricting the country’s FDI potential. In 2019, business report published by World Bank ranked Nigeria as the 146th once drop compared to 2018 report. However, Nigeria has been attracting strong inflows from big American companies like Uber, Facebook as well as emergent payments and Melt ware group. China has also been investing in the country especially in the aerospace, automobile and textile industries. 2.1.7 Historical Trends of FDI inflow in Nigeria After independence, Nigeria potential in attracting foreign direct investment was large, but it was not long before it was daunted. At the onset, the enthusiasm of Nigerian governments at embracing foreign direct investment was based on a list of opportunities expected to be derived from such investment, but this was short lived. In fact, as early as 1962, Nigerians started to believe that opening up of the economy to foreign investor may not be the best way to develop the economy, FDI was seen as “parasitic” and retarding the development of domestic industries for export promotion Ayanwale (2007). Between 1963 and 1972 an average of 65% of total capital was in foreign hands (Ogunkola and Jerome, 2004). The policy maker argument was premised on the fact that the economy should not be dominated by foreigners (fear of another form of colonialism), as well as possible divergences between the foreign investors and Nigeria’s macro-economic policy objectives (Obioma, 1997). Over the years therefore, substantial statutory provisions were inserted into Nigeria’s foreign investment policies and strategies, some of these were counter- productive towards attracting FDI into Nigerian economy (e.g. Exchange Control Act of 1962, Immigration Act of 1963, Company Act of 1968 and the Nigeria Enterprise Promotion Decree, popularly known as indigenous decree of 1972, and 1976). In addition, over 3 years of civil war led to lack of clear jurisdiction of government agencies charged with FDI approvals, corruption and red-tapism at the public sector all made the investment environment to become unfriendly. By the early 1980s, it was clear that the overvalued naira could no longer sustain adequate foreign exchange to repatriate proceeds of foreign investors operating in the country. This was further reduced to 35% by January 1, 1992. The present level of 30% took effect from January 1, 1996. In addition, various tax incentive measures have been given to manufacturing industry. For instance, effect from 1990, agriculture and manufacturing industries were granted 10% investment allowance for the first year of purchase of property and machinery. Also, manufacturing and construction industries were granted accelerated depreciation in plant and machinery from 20% initial and 10% annual allowances in 1986 to 25% and 10% in 1989 and then to 50% and 25% in 1996. Import duties on manufacturing machineries have been fluctuating since 1985. It was reduced from 15% to 10% in 1985, and reverted to its old rate of 15% in 1993. It fell to its lowest rate of 5% in1995 and since 1999 to date, the import duties on manufacturing machineries remain at 10%. All these efforts are geared towards attracting investment especially foreign direct investment. The push toward privatization continued in early 1997, with the government’s objective switching from restoring economic stability to expanding privatization and the promotion of growth. Despite these formal measures and reforms, foreign investors‟ perceptions of Nigeria did not considerably improve during the period. In fact, the institutional investor measure of country risk decreased dramatically since 1981, the year in which the figure was the highest and notably before substantial liberalization measures. By 1985, the figure had been reduced by half, and the value in 1998 is on record as the lowest. As a proportion of the Gross Domestic Product (GDP), FDI accounted for 3.6% in 1970s, 4.3% in 1980s, 3.0% in 1990s and 1.4% during 1991 – 1998. (Source: CBN, Statistical Bulletin, various issues). The actual time series of flows is also telling. The political instability marked by military coups in December 1983 and August 1985 as well as continued intervention by the military throughout the 1990s; explain the failure of financial liberalization to affect improved investor perception or substantial increases in Foreign Direct Investment. Through the Foreign Direct Investment, the Multinationals engage not only in trade across the globe, but also are responsible for the relocation of production plants and allocation of what is now known as international capital. They constantly seek to broaden their markets and escape the national conditions and legislation in the area of production. In essence, it is argued that they decide where the capital goes and when, through their investment decisions. According to Sanusi and Garba (2003), to international investors such as MNCs, globalization is breaking national barriers to trade and capital is attracted when countries offer competitive returns, relative security and freedom of entry and exit which are made available through globalization. We would like to add that the pursuit of FDI without serious attention to what would make Nigerians invest in their own country only results in foreigners focusing on enclave-type economic activities, notably oil and gas. (An enclave economic activity is one in which investors can make quick huge returns with minimal exposure to the prevailing hostile investment climate and without any significant linkages to the host economy). In the oil sector, the lack of investment in oil refineries for decades and the consequent high prices and unending periodic shortages of petrol and diesel is a testimony to the enclave nature of investment in the sector.During 2003–2007, Global FDI flows followed an upward trend, fuelled by steady world economic growth, ongoing liberalization in investment regimes and the implementation of large-scale internationalization strategies by a growing number of transnational corporations (TNCs). This led to an unprecedented level in FDI flows in 2007, with flows reaching a historic record of $2.0 trillion (UNCTAD, January 2009). The figure stood at $1.3 trillion in 2012 (UNCTAD, 2013). 2.2 Theoretical Review Theoretical study on FDI have led to a better understanding of the economic mechanism and the behavior of economic agents, both at micro and macro level which allows the opening of new areas of study in economic theory. To understand FDI we have to identify and understand the main trends in FDI theory, how these theories were developed and their motivations. Theories of FDI may be classified under the following headings: 2.2.1 Classical Theory In broad terms, the classical theory claims that FDI and multinational corporations (MNCs) contribute to the economic development of host countries through a number of channels. These include the transfer of capital, advanced technological equipment and skills, the improvement in balance of payment, expansion of tax base and foreign exchange earnings, creation of employment and the integration of the host economy into international markets. These claims about FDI has been amplified by the phenomenal economic growth of the newly industrialized countries like; Hong Kong, Taiwan, Singapore and South Korea especially in the 1980s and early 1990s (Muchlinski 1995 and Umar 1980) and more recently by china`s impressive growth. With its emphasis on the importance of FDI and limited state role, the classical doctrine has been propagated in recent years by international institutions and organizations like the United Nations (UN), the World Bank and the International Monetary Fund (IMF). 2.2.2 The Dependency Theory Drawing from the experience of Latin America, proponents of this theory argue that relations of free trade and foreign investment with the industrialized countries are the main causes of underdevelopment and exploitation of developing economies (Wilham and Witter, (1998). This theory focuses largely on the relationship between center and periphery. Well developed and industrialized countries are deemed to constitute the center and the least developed countries the periphery. In this regard, FDI is seen as a conduit through which the center exploits the periphery and perpetuates the latter`s state of underdevelopment and dependence. Instead of promoting economic development, foreign investment strangulates such development and perpetuates the domination of weaker states (Somarazah, 1994). MNCs are accused of being exploiters. These views are largely informed by the fact that multinationals have often been involved in the exploitation of natural resources with no corresponding benefits for host economies (UNCTAD, 1999). The dependency theory is very much a reaction against this “extractive nature” of FDI. 2.2.3 The Intervention/Integration/Middle Path Theory The intervention or integrative school attempts to analyze FDI from the perspective of the host country as well as that of the investor. It incorporates arguments from both classical and dependency theorists. The theory posits that foreign investment must be protected but only to the extent of the benefit it brings the host state and the extent to which foreign investors have behaved as good corporate citizens in promoting the economic and social objectives of the host country. The theory calls for a mixture of intervention and openness in dealing with foreign investment and cautions against too much regulation or intervention (Seid, 2002). The theory recognizes that there are instances where the market is better placed to act and other instances where government intervention is necessary. What is needed therefore is a balancing act between those activities that can best be handled by the market and those that can be done by the government. This theory represents a convergence between Adam Smith`s case of laissez-faire and Keynes`s argument in favor of government intervention. Other theories include the production cycle theory of Vernon, internationalization theory, industrial organization approach and eclectic paradigm. 2.2.4 Production Cycle Theory of Vernon Production cycle theory developed by Vernon in 1966 was used to explain certain types of foreign direct investment made by U.S. companies in Western Europe after the Second World War in the manufacturing industry. The theory attempts to integrate three stages of production in order to explain the life cycle of a product. The first stage of this model deals with the introduction of innovation. It is argued that new products will be invented, produced and sold in countries with the highest incomes and skill. If the product meets with success in a wealthy market, production increases, new markets are explored and export develops. This marks the beginning of the second stage – maturity. In this stage the price elasticity of demand for the product is comparatively low. The demand for the product rises in the foreign market and competitors emerge. The original producer establishes a production unit in the foreign country to cater to the increased foreign demand as well as to compete with rivals. It is in the second stage that the firm goes international. The final stage is characterized by product standardization. The production technique becomes well-known and reaches its zenith. As a result, investment moves on further to any location in the world where costs are at the lowest possible level. Thereafter, the product is exported to the original country of innovation where the product is phased out in order to favor innovation of yet another product. Thus, the exporter becomes an importer at this stage of production. This theory fails to explain why it is profitable for a firm to undertake FDI rather than continuing to export from the home country or by licensing a foreign firm to produce its products. It simply argues that once a foreign market is large enough to support local production, FDI will take place. However, it fails to identify when it is profitable to invest internationally. Vernon (1979) recognized that the situation had changed rapidly since he had developed his theory and that this had considerably weakened its predictive power (Latorre, 2008). 2.2.5 Internalization Theory of Foreign Direct Investment Buckley and Casson (1976) provided another explanation of FDI by putting emphasis on intermediate inputs and technology. They shifted the focus of the international investment theory from country-specific towards industry-level and firm-level determinants of FDI (Henisz, 2003). Buckley and Casson analyzed MNCs within a broad-based framework developed by Coase (1937). Their theory came to be known as internalization theory as they stressed this fact with regard to the creation of MNCs. They articulated their theory based on three postulates; a) Firms maximize profits in a market that is imperfect. b) When markets in intermediate products are imperfect, there is an incentive to bypass them by creating internal markets. c) Internalization of markets across the world leads to MNCs. A firm that is engaged in research and development may develop a new technology or process, or inputs. It may be difficult to transfer technology or sell the inputs to other unrelated firms because those other firms may find the transaction costs to be too high. Faced with this situation, a firm may choose to internalize by using backward and forward integration, i.e., the output of one subsidiary can be used as an input to the production of another, or technology developed by one subsidiary may be utilized in others. When internalization involves operations in different countries then it necessarily means FDI. Buckley and Casson (1976) identified five types of market imperfections that result in internalization: i. The co-ordination of resources requires a long time lag: ii. The efficient exploitation of market power requires discriminatory pricing; iii. A bilateral monopoly produces unstable bargaining situations; iv. A buyer cannot correctly estimate the price of the goods on sale; and v. A government intervention in international markets creates an incentive for transfer pricing. Although Buckley and Casson acknowledged the risk of host government intervention, they did not consider the difference in the magnitude of this risk across various industries. 2.2.6 Industrial Organization Approach In his 1960 doctoral dissertation, Hymer (1976) developed the FDI theory of industrial organization. His theory, which was one of the first works to explain international production in an imperfect market framework, was supported by Lemfalussy (1961), Kindleberger (1969), Knickerbocker (1973), Caves (1974), Dunning (1974), Vaitsos (1974) and Cohen (1975) among others. The essence of Hymer’s theory is that firms operating abroad have to compete with domestic firms that are in an advantageous position in terms of culture, language, legal system and consumer’s preference. Furthermore, foreign firms are also exposed to foreign exchange risk. These disadvantages must be offset by some form of market power in order to make international investment profitable. The sources of market power – the firm-specific advantage in Hymer’s terms or monopolistic advantage in Kindleberger’s terms – are in the form of patent-protected superior technology, brand names, marketing and management skills, economies of scale and cheaper sources of finance. Hymer (1976) has said that technological superiority is the most important advantage as it facilitates the introduction of new products with new features. Moreover, the possession of knowledge helps in developing other skills such as marketing and improved production process. Since the market is imperfect, firms are able to take advantage of their market power to reap good profits by investing abroad. This argument was supported by some other researchers. For example, Graham and Krugman (1989) stated that in the past it was the technological advantage possessed by European firms that had led to them investing in the United States. Sodersten (1970) also argued that willingness to increase profits by taking advantage of technological superiority or superior organizational structure were the main reasons for direct investment. However, at the same time, critics such as Robock and Simmond (1983) argued that possessing firm-specific advantages did not necessarily mean investment abroad as firms might very well exploit their advantages through exporting or licensing. The foregone explanation transformed FDI theory from neoclassical trade theories into the industrial organization theory. Hymer’s thesis does not form a complete explanation for FDI because it fails to explain where and when FDI takes place. This has been attempted by Vernon’s (1966) PLC theory, the eclectic approach by Dunning (1977, 1979 and 1988) and the internalization theory by Buckley and Casson (1976). 2.2.7 Eclectic Paradigm to Foreign Direct Investment In the 1970s one of the most robust and comprehensive theories of FDI was developed by Dunning (2007). In his path breaking work, Dunning (1977 and 1979) amalgamated the major imperfect market-based theories-the oligopolistic and internalization theories – and added a third dimension in the form of location theory to explain why a firm opens a foreign subsidiary. Location theory addresses the important questions of who produces what goods or services in which locations, and why? Location theory has also been frequently applied by researchers in attempting to understand the factors that influence locations of MNC units. Among others, they enumerated factors such as host country policies, economic fundamentals, firm strategy, and agglomeration economies. On the basis of the above, Dunning (1993) put forward his theory, which came to be known as the eclectic paradigm or OLI paradigm. FDI if three conditions were fulfilled: a. Dunning suggested that a firm would engage in It should have ownership advantages vis-à-vis other firms (O); b. It is beneficial to internalize these advantages rather than to use the market to transfer them to foreign firms (I); c. There are some location advantages in using a firm’s ownership advantages in a foreign locale (L) Ownership advantages are those which are specific to a firm. These advantages, which may be enjoyed over domestic and foreign competitors, are in the form of both tangible and intangible assets. These ownership advantages lead to reductions in a firm’s production costs and allow it to compete with firms in a foreign country. Location advantages of different countries play a significant role in determining which country will play host to the activities of multinational corporations. As indicated above, a firm gain from avoiding market imperfections in terms of uncertainty, problems of control, lack of desirability of giving full information to potential buyers etc. The internalization gains make it more profitable to carry out transactions within the firm than to depend on external markets. The essential feature in the eclectic theory is that all three types of conditions must be satisfied before FDI occurs. Dunning (1980) stated that the “OLI triad of variables determining FDI and MNCs activities may be likened to a three legged stool; each leg is supportive of the others, and the stool is only functional if the three legs are evenly balanced”. What this means is that a firm having ownership advantage, and where there are internationalization gains but no locational advantage is incurred by setting up a unit in a foreign country, will very likely choose to increase its production at home and export its product(s) abroad. In the same way, a firm having ownership and locational advantages will find it more profitable to produce abroad than to produce domestically and export its product(s); however, if there are no internalization gains then the firm will be better off licensing its ownership advantage to foreign firms. The major contribution by Dunning’s eclectic paradigm to the existing literature on FDI was to combine several complementary theories, and identify a set of factors that influence the activities of MNCs. For this reason, his theory gained wider acceptance than other imperfect market-based theories. Dunning (1980) empirically tested his theory and obtained satisfactory results. However, one of the main criticisms of the eclectic paradigm is that it includes so many variables that it loses any operational practicality. Dunning himself accepted this fact and stated that it was an inevitable consequence of trying to incorporate the different motivations behind FDI into one general theory. 2.4 Empirical Review A wide range of studies are available in literature on the impact of FDI on Nigeria’s economic improvement and also on the determinant of FDI. Ugochukwu, Okoro and Onoh (2013) in their study on the impact of FDI on economic growth using the ordinary least square method and granger causality test reached a conclusion that FDI has a positive and significant impact on economic growth. Interest rate was found to be positive and insignificant while exchanged rate positively and significantly affect the growth of the Nigerian economy. Ijeoma (2012) using ordinary least square regression technique ascertained that general objective FDI positively impacts the growth of the Nigeria economy. Adeleke, Olowe and oluwafolakemi (2014) also using the same methodology reached the conclusion that economic growth is directly related to inflow of FDI. Okon, Jacob and Chuku (2011) using single and simultaneous equation systems pointed out that foreign direct investment and economic growth are simultaneously determined in Nigeria and there is positive feedback from FDI to growth and from growth to FDI. Anfofum, Gambo and Suleiman (2013) in their study on the impact of FDI in Nigeria using ordinary least square equation which was disaggregated into five equations, a co-integration and granger causality techniques concluded that foreign direct investment is a positive measure of economic growth. Matthew and Johnson (2013) using ordinary least square (OLS) method in their paper “Accelerating Economic Growth in Nigeria, the Role of Foreign Direct Investment: A Reassessment” reached a result that foreign direct investment and domestic savings make significant contribution to the growth economy of Nigeria. In another study of theirs on the impact of FDI on employment generation in Nigeria also using ordinary least square regression granger test, Dickey-Fuller and Augmented Dickey-Fuller (ADF) unit root test ascertained that FDI has a positive impact on employment generation. Olumuyiwa (2013) in his study on the impact of FDI inflow on economic growth in a pre and post deregulated Nigeria economy covering the period 1970 to 2010 using Granger causality test ascertained that there is a causality relationship in the pre-deregulation era that is (1970-1986) from economic growth (GDP) to FDI inflow which means GDP causes FDI, but there is no causality relationship in the post-deregulation era that is (1986-2010) between economic growth (GDP) and FDI inflow which means GDP does not cause FDI. However, between 1970 to 2010 shows that there is a causality relationship between economic growth (GDP) and FDI inflow. That is, economic growth drives FDI inflow in the country and vice versa. Onuoha and Oregwu (2013) using ordinary least square regression in their study on the determinant of FDI and the Nigerian economy reached a result that GDP does not bring about foreign direct investment. Transportation and communication exhibit positive relationship with FDI and the openness of trade is not significant. Adaramolo and Obisesan (2015) in their study on the impact of FDI on the Nigerian capital market development using ordinary least square, ADF unit root test, and Johansen co integration test reached a conclusion that Foreign Direct Investment impact positively and significantly on market capitalization. Danja (2012) utilizing ordinary least square regression in his study on FDI revealed that FDI has a positive relationship with Gross Fixed Capital Formation and index of industrial production but FDI has not contributed much to the growth and development of the Nigerian economy. Adebisi, Anogundade, Oluwakayado and Oyatoye (2011) on FDI, exports and economic growth in Nigeria resulted a positive relationship between foreign direct investment and gross domestic product and a positive relationship between foreign direct investment and export. This result was reached using ordinary least square regression. Akinlo (2004) investigates the impact of foreign direct investment on economic growth in Nigeria using data for the period 1970 to 2001. His error correction model (ECM) results show that both private capital and lagged foreign capital have small significant impact on export and economic growth. Olokoye (2012) studied FDI and economic growth using Nigeria as the case study. She used ordinary least square (OLS) regression technique to test the time series from 1970 to 2007 and Cochrane-or cutt iterative method was used to correct for autocorrelation and the result evidently do not provide much support for the view of a robust link between FDI and economic growth in Nigeria. Though the result does not imply that FDI is unimportant, the analysis reduces the confidence in the belief that FDI has exerted an independent growth effect in Nigeria. Njogu (2013) examined the determinants of FDI in pre and deregulated Nigerian economy using multiple regression model, unit root test, co-integration and granger causality test in her analysis revealed that, exchange rate, inflation, and degree of openness in pre deregulated Nigerian economy had a negative and non- significant impact on foreign direct investment. While market size had a positive and non-significant impact on foreign direct investment. In deregulated Nigerian economy, exchange rate and degree of openness had a negative and non significant impact on foreign direct investment. Inflation rate had a positive and non- significant impact and market size had a positive and significant impact on foreign direct investment in the Nigerian economy. Osaghale and Amenkhieman (1987), investigates the relationship between FDI and economic growth in Nigeria and found out that there was increment in Nigeria’s revenue from oil export between 1970 and 1982 and there was a substantial growth in her foreign debits and FDI. The results made it known that there was a positive relationship between FDI and GDP and the conclusion of the study was of the view that the economy would perform better with greater inflow of FDI and it also recommended that less developed countries should create more a conducive environment for FDI. Aromu (2003) observed that FDI can raise the level of capital formation, promote export and generate exchange. Indeed, the role of FDI in capital formation in Nigeria has been increasing over the years. Isah (2012) examined the long term determinants of foreign direct investment in Nigeria covering a period of 1971 to 2009 using Vector Error Correction Mechanism (VECM). His results provided evidence which indicates that the size of Nigeria’s domestic market, the liberalization policy and openness of the economy as well as stable domestic currency are significant in attracting FDI. He further recommended that Nigeria should strengthen its investment environment by reducing obstacles to doing business, improving Nigeria’s economic management and export promotion schemes. Nurudeen and Wafure (2010) detected on the determinants of foreign direct investment in Nigeria a result that revealed market size, deregulation, political instability and exchange rate depreciation are the main determinants of foreign direct Sinvestment in Nigeria. They made use of the error correction technique to analyze the relationship between foreign direct investment and its determinants. They recommended that further deregulation of the economy through privatization and reduction of government interference and strengthening of the political institutions will promote foreign direct investment. 2.5 Gap(S) Identified In the Literature Foreign direct investment is becoming a very important area of research in Nigeria. Studies have been carried out on the impact of foreign direct investment on the Nigerian economy and also on the determinants of foreign direct investment. Having examined some literatures, it was to observe that certain aspects of FDI were not examined thoroughly by past researches. Some of the findings from the literatures revealed that foreign direct investment has a positive impact on economic growth (see Ugochukuw, Okore and Onoh (2013); Ijeoma (2012); Chuku, Jacob and Umoh (2011); Anfofum, Gambo and Suleman (2013); Johnson and Mathew (2013); Adebisi, Arogundade, Oluwakayado and Oyatoye (2011), Osaghale and Amenkhieman (1987), while others revealed a negative or inconclusive impact (see Danja (2012); Olokoye (2012).Different studies were done on the determinant of FDI and some of the variables revealed to have significant impact on FDI include Transport, Communication, Trade openness, Market size, stability of the current, deregulation and exchange rate (see Njogo (2013); Onuoha and Oregwu (2013), Isah (2012); Nurudeen (2010). However, this study will modify the previous studies by including a different Variable which includes Manufacturing, Services and Primary Sector (Mining and Extraction Industries). 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